A new study by the Bank of Canada released on Thursday showed that investors accounted for nearly 20 percent of home purchases dating back to 2014, a figure that has quickly surpassed other types of buyers during the COVID-19 pandemic.
The report, titled Housing Demand in Canada: A Novel Approach to Classification Mortgaged Home Buyers, found that the share of home investors rose in 2017 as house prices in cities like Vancouver skyrocketed and rose at an even greater pace in 2021.
The Bank of Canada analyzed microdata from various sources, including from the major Canadian banks and credit bureaus. Central Bank staff then developed an algorithm to match the datasets to categorize mortgaged home buyers into three distinct groups: first-time buyers, repeat buyers, and investors.
The report acknowledged the method’s limitations in capturing all investors, or those with multiple mortgages, because it only examines domestic data, so foreign buyers would only be counted on if they got a mortgage in Canada. The data also did not take into account home purchases made by companies or if cash was paid for these properties, meaning the number of investors may be underreported.
Despite government intervention, house prices have hit record highs in many markets across the country, bringing the talk of affordability and financial stability back to the forefront.
The Bank of Canada survey is also among the first official policy-maker-backed reports showing the significant role investors play in Canada’s housing market. Aside from anecdotes from the real estate community, previous surveys of home investors have generally proven to be much smaller.
ONE study by the Government of British Columbia in 2016 that foreign investors accounted for about 10 percent of Vancouver home sales over a five-week span.
As house prices have outpaced increases in disposable income, first-time home buyers have been hit hard.
The Bank of Canada report showed that the proportion of first-time home buyers has been declining since 2015 to a new low last year.
“A key insight that can emerge from our initial analysis of this data is that home purchases are increasingly driven by existing homeowners. Within this group, investors have seen the largest gain in their share of home purchases during the COVID 19 pandemic,” the report said.
It also recognized that while investors can be a significant source of market instability, they are also an important factor in adding rental offerings.